What Is When and How to Rebalance Your Portfolio?
Portfolio rebalancing restores target asset allocations after market movements cause drift. Without rebalancing, a 60/40 equity-bond portfolio can become 80/20 during a bull market, significantly increasing risk beyond the intended level.
Why It Matters
The optimal rebalancing strategy balances transaction costs against risk reduction. Calendar-based rebalancing (quarterly or annually) is simple but may trigger unnecessary trades. Threshold-based rebalancing (when allocation drifts 5% or more) is more efficient and reduces costs.
How LyraIQ Approaches This
LyraIQ's rebalancing engine calculates optimal rebalancing triggers based on your portfolio's specific concentration and correlation structure. The system recommends which positions to trim and which to add, prioritizing tax-efficient moves and minimizing transaction costs.
Practical Steps
- Define target allocations for each asset class and sector
- Set a rebalancing threshold (typically 5% drift from target)
- Review tax implications before executing rebalancing trades
- Prioritize rebalancing within tax-advantaged accounts first
- Document the rationale for each rebalancing decision